Unlike Keynesian critics of Say`s law of markets, who viewed aggregate weak demand resulting from various forms of market failures as the cause of economic downturns, we argued that a better understanding of Say`s law suggests that there is no inherent market defect leading to weak aggregate demand. nor that the existence of actual recessions is a refutation of the law. On the contrary, if we understand the role of money in translating our productive supply power into the ability to ask other producers, we can see that the root of macroeconomic disorder is most likely monetary, because too much or too little money undermines this translation process. Although Say`s Law was rejected in the onslaught of the Keynesian revolution, while it is well understood both in its original meaning and in its relationship to the banking system, it remains a powerful insight into the workings of a market economy. Say added that because production necessarily creates demand, a “general glut” of unsold goods of all kinds is impossible. If there is an oversupply of one good, there must be a shortage of another: “The abundance of goods of one description arises from the absence of goods of another description.” [10] “When the producer has put the finishing touches on his product, he takes great care to sell it immediately so that its value in his hands does not diminish. He is no less eager to have the money he can get for it; For the value of money is also transitory. Such economic losses and unemployment were considered by some economists, such as Marx and Keynes themselves, to be an intrinsic feature of the capitalist system. The division of labor means that you should always anticipate what others are willing to buy, which leads to miscalculations. Olivier Blanchard and Larry Summers, who observed persistently high and rising unemployment rates in Europe in the 1970s and 1980s, argued that adverse demand shocks can lead to persistently high unemployment, permanently reducing the supply of goods and services. [25] Antonio Fatás and Larry Summers argued that demand deficits resulting from both the global economic downturn of 2008 and 2009 and subsequent attempts by governments to reduce government spending were due to actual and potential global economic output. [26] Among the many important implications of Say`s Law is the fact that wealth and economic expansion are supply-side phenomena, a consequence of entrepreneurs, the pursuit of profit, savings, investment, and capital accumulation.
In negative terms, “consumers” per se are not the engine of economies (let alone today`s biggest consumer: government). Recessions, economic stagnation, unemployment, and crises do not occur because of “overproduction” (or “underconsumption”), but because public policies undermine property rights, manipulate prices, prevent markets from equilibrium, impede trade, and tax profits, incomes, and capital. If we want to have a more accurate understanding of Say`s law, perhaps we should consult what Say himself had to say about his alleged law. In the passage where he comes to the insight behind the idea that supply creates its own demand, Say writes: “It is production that opens up a demand for products. Thus, the simple act of creating one product immediately opens a valve for other products. [2] In other words, Say asserted that production is the source of demand. The ability to demand goods and services from others stems from the income generated by one`s own acts of production. Wealth comes from production, not consumption.
My ability to demand food, clothing, and shelter comes from the productivity of my work or non-work assets. The higher (low) this productivity, the higher (low) my strength is to demand. It should be noted that a product is barely created, from this moment on, offers a market for other products to the fullest extent of its own value. When the producer has put the finishing touches on his product, he takes great care to sell it immediately so that its value in his hands does not diminish. He is no less eager to have the money he can get for it; Because the value of money is also transitory. But the only way to get rid of money is to buy one or the other product. Thus, the simple act of creating one product immediately opens a valve for other products. [9] Kate [6] extrapolated Say`s law on unemployment more eloquently than Keynes could ever do: “The classic position was that involuntary unemployment was not only possible, but frequent and had serious consequences for the unemployed. Please do not edit the article, be sure to credit the author and mention that this article was originally FEE.org However, he pointed out that the scarcity of some goods and flooding of others may persist if the collapse in production continues due to prolonged natural disasters or (more frequent) government interventions. Say`s Law therefore supports the idea that governments should not interfere in the free market and adopt a laissez-faire economy.
Pou`s formulation of Say`s law has also been heavily criticized. Keynes pointed out that a general fall in wages will not increase employment in the economy as a whole, since wages are income for a large part of the population. As purchasing power declines, so does their demand for goods and services. Employment in the economy depends on total expenditure (effective demand) and not on the level of wages. The assumption that hoarding is irrational has been challenged by underconsumption economists such as John M. Robertson in his 1892 book The Fallacy of Saving:[34][35] in which he cited Say`s Law: Here are two points about the general price level. First, “demand” (like “supply”) is measured in dollars per year. It is difficult to argue that the new supply has created its own demand if the number of dollars per year does not increase. · It is misleading to define Say`s Law as “supply creates its own demand” (or, such a typical mockery, that the supply of bikinis will create a demand for bikinis, even in Alaska). In truth, newly created bikinis bring with them a demand for things other than bikinis. There may be an “oversupply” (surplus) of goods (or money) in some markets (microeconomic), but not a “general oversupply” in all markets (macroeconomic), and to deny this is to commit the miscomposition (“what is true for the parties is true for the whole”).
Since all exchanges of goods or services in the market are for money, all markets are money markets, and the only way there can be an excess supply or demand for goods is when there is an opposite supply or demand for excess money. Consider the most obvious case of a glut of commodities that could be found in times of recession. Say`s Law, properly understood, suggests that the explanation for an oversupply of goods is an oversupply of money. Goods are not sold because buyers cannot get their hands on the money they need to buy them, even if they are potentially productive suppliers of labour. Conversely, a general shortage or excessive demand for goods can only occur if there is an oversupply of the thing for which the goods are exchanged, which can only be money. Recessions and inflations are therefore fundamentally monetary phenomena, because Say`s law points us in the direction of examining what happens in money production to explain the collapse of the process of translating production into demand. Read this article to discover the top eleven criticisms of Say`s law of the market. To some extent, Say`s law is merely an extension of Adam Smith`s idea that the division of labor is limited by market size. [6] Smith`s argument was that the degree of specialization that would be seen in a given market depended on the extent of demand for the specialty product. Thus, in small towns, there are rarely ethnic restaurants beyond the very popular Chinese and Italian, nor radio stations specializing in very narrow music formats (old from the 1970s, for example). Larger, wealthier communities can support this level of specialization because there is sufficient demand resulting from a larger population and greater degree of prosperity.
In this sense, production (supply) is the source of demand. · Some Keynesians have recognized the importance of a debate about the initial foundations and principles, recognizing that if Say`s Law is true, Keynesian economics cannot necessarily be true as well (since Keynesian economics holds that there can be a difference between aggregate demand and aggregate supply, and that government policy can do something to close the gap). According to the logic and reality of the question, Say`s law is actually true and valid, so Keynesian economics is not. As there have been many ongoing economic crises in the past, one or more of the assumptions of Say`s law, its reasoning or its conclusions can be rejected. Taking the assumptions in order: · Economic recessions do not reflect insufficient nominal demand (a so-called “shortage of money”), but a lower real supply due to counterproductive public policies (taxation, regulation, etc.) that confiscate or divert wealth and hinder and punish its creation; Public spending does not cure recessions by encouraging consumption, but only delays recovery; Public expenditure is financed by taxes, borrowing or money printing, none of which is in itself productive; No magic “public spending multiplier” stems from an increased “marginal propensity to consume.” Scholars disagree on whether it was Say who established the principle first,[6][7] but by convention, Say`s law has been another name for the law of markets since John Maynard Keynes used the term in the 1930s.